So who the hell is Burton G. Malkiel? Having just finished this book I am a little baffled by the idea that such a popular booking on investing was written by an author I have never heard about or mentioned about by anyone else in the field. Maybe I just haven’t developed a wide enough understanding or I am not involved deep enough into the investing community to know who he is.
My mindset coming into the book was to look for some concrete advice on finding stock picks to beat the market. Wow was I wrong. So with this book I was first introduced to the idea of the “efficient market hypothesis”. The author is a supporter of this theory by concluding that the market will always adjust itself to breaking news, company financials and the irrational behavior of its investors.
The first part of this book evaluates bubbles and fads throughout history. This includes biotech bubbles, the dotcom boom and most recently, the housing market crash that destroyed the economy back in 2008. It generally summarizes how bubbles develop and how they are in essence self-destructive, leading to an eventual crash. I thought this part was fairly informative. It gave provides the reader with a very shallow but digestive understanding of previous bubbles.
Next, the author moves on to explore stock market analysis techniques including both fundamental and technical analysis that try to beat the market by its own evaluations and rules. The author gives a basic summary of the basis of each theory, demonstrates with examples how each technique is applied and then moves on the disprove them by historical data and examples. This part really angered me when reading. It seemed like the author chose to focus solely on examples that defended his case and not the other way around. It felt like reading a math textbook that told you all the cases where one plus another number does not equal two but does not go to prove a general solution. One point that stood out to me was the author focusing on growth stocks to show that fundamental analysis is does not work. I have learned that fundamental analysis should be limited to big market companies, with established financials and conservative growth rates demonstrated through its own history. The author here decides to prove his point using small cap companies and tech stocks that have great initial growth rates which cannot be maintained in the long run. That is pretty obvious. Thus I think the author seems very biased on his opinion and argument development.
The third part of the book focus on the author defending the efficient market hypothesis. The author concludes that there is no way to predict the market demonstrated through all this previous examples. He also states that super successful financial investors only last throughout a certain time period with their applied technique and cannot be stretched out to the general public in the long run. I think it is rather curious how he does not talk about investors such as Ray Dalio, Warren Bufffet, Peter Lynch, etc. Ok, I take that back, he briefly mentions Lynch, quickly stating that he retired before getting having a chance to get his stock picking theories disproved. I believe the author makes a lot of good points here. One of the being the fact that so many unpredictable events happen that affect the stock market. For all we know, another 9/11 incident could happen tomorrow. The chances don’t seem very high, but its unpredictable events such as these that makes the market unpredictable. On top of this point, the hypothesis states that even if such a event were to happen, the market will take the initial impact but eventually adjust itself.
The last part of the book, the author goes to advise the reader on his own portfolio management advice. Here he states that investors should invest based on their age. A college grad can take more risks while a retired single mother cannot. He also emphasizes the importance making a core portfolio consisting of index funds. Because we cannot predict the future, we should just buy index funds that follows the market. That is a solid logically conclusion leading from the previous sections. From my point of view, it seemed as if the author did not have major discoveries himself and just took the easy way out to state index funds are the way to go. Yea, he isn’t wrong, but I don’t think he needed a whole point to prove his point.
Overall, I didn’t really like the book. I think the book is a good introduction to investing. It is very readable for the everyday person and provides a glimpse on the basics of investing. On the other hand, I didn’t like how the author tried to be both scientific and anecdotal. It felt as if he did a shitty job trying to compromise both sides in the way he wrote his book. I think a lot of this information can be easily summarized, explained and accessible without needing to go through his whole book.